It makes perfect sense from the perspective of a company that doesn't care about games. Games are not as profitable as they used to be, and the changed gambling laws in Japan promise to be fair more profitable than videogames ever were, so they have no reason to keep up with making games when they don't care about games.

As stated in another post, some of Kojima's methods regarding game development didn't help either. Silent Hills probably wouldn't have seemed like nearly as much of a money drain if Kojima didn't have the tendency to go way over-budget. As it was, they cut off the perceived leech before it drained them of even more money that they figured they would never see back.

Kojima gets a reputation as a "Diva", but I do wonder how much that is relative to other gaming companies. Of course Konami would get annoyed by Kojima's perfectionism, but as a publisher that never cared about games as a medium, that's to be expected. What would Kojima's reputation be at a company that is as passionate about games as he is?

Sometimes you have be unwilling to cut some corners to create something great. Some developers and their companies work similarly, though of course they have limits. But it's interesting... even though Kojima's habits grind their gears so much, Konami seems to have a pretty hands-off approach to game development. They don't really seem to care too much what their people are making as long as it fulfills its basic goals, makes money, and doesn't cost too much money. I don't see how else Silent Hill would have been made in the first place - its only real goal was to compete with Resident Evil, and it did. So the developers could make things as deep, nuanced, and complex as they wanted with seemingly very little 'studio' interference.

So I imagine Konami, while being constantly annoyed at Kojima, never really does anything about it. They only act now, when they're prepared to quit making games for good, just to trim the fat and get satisfaction. But they had to be able to hold in the reins more, and would have done so if they cared enough, to stamp out those rebellious tendencies of Kojima earlier on rather than letting it become a disaster then fire him once they couldn't control it anymore. At the very least, we wouldn't have been promised Silent Hills and then have it taken away from us. It just wouldn't have happened in the first place.